Analysis of Rivian’s 2023 Results

Analysis of Rivian’s 2023 Results

Recently, the two COVID EV darlings, Lucid and Rivian reported their 2023 full year results.  I covered Lucid (Analysis of Lucid’s 2023 Results) a couple of weeks ago which now brings us to Rivian.  Both Lucid & Rivian IPO’ed in 2021 and have been developing Electric Vehicles since the mid 2010’s.  Lucid stock peaked at $55.21 in November 2021 and is currently trading at $3.00 per share.  Over the same period, Rivian stock has crashed from a high of $129.95 to $12.69 today.  Both have the very rare honor of making AML look like a better investment over the same period. The question is why, what has happened, is there any hope for the future. Before getting into the results, there are two quotes regarding Rivian that recently caught my attention.  The first is from Rivian’s website:

 

An investment for generations to come.

At Rivian, we’re committed to showing that a successful business can also be good for the planet.

 

Which I thought showed a complete detachment from reality.  Any business that burns through over $12 billion in cash over the last 2 years is far from successful by any definition I am used to using.  In terms of it being an investment for generations to come, given the stock’s performance over the last several years, it might be several generations before it gets back to where it IPOed.

 

And the second comes from one of Amber Heard’s ex-boyfriends:

 

Tesla CEO Elon Musk said last month that Rivian’s product design was “not bad,” but added, “the actual hard part of making a car company work is achieving volume production with positive cash flow.” He suggested his rival would go bankrupt in six quarters without a drastic change, saying it needed to “cut costs massively.”

 

I believe this is both spot on and what I would be looking for when going through both the earnings call transcript and financials.

Earnings Call

Given that over the last 3 years, Rivian has burnt through $16.9 billion in cash while delivering 71,374 vehicles (that’s $240k per vehicle delivered) I opened the transcript of Rivian’s earning call expecting to hear the CEO, RJ Scaringe, talking about a company in crisis that’s taking urgent steps to turnaround the business, drive sales, and stop the cash burn.  To start off Scaringe did exactly that.  In his opening statement, he started off by announcing that Rivian was reducing its salaried headcount by 10%. That was followed by:

 

Major goal with the launch of R1 was to build a brand that deeply resonates with customers. Beyond our active owner groups and the R1S being the top-selling EV in the US priced over $70,000, in owner satisfaction survey conducted by Consumer Reports, showed Rivian as the number one automotive brand with the highest likelihood for customers to purchase again.

 

We intend to harness this brand strength as we launch R2, which we will be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically-integrated propulsion platforms, electronics and software to create an incredible user experience.

 

Our team is laser-focused on the factors within our control that will drive Rivian’s long-term value. These include driving cost-efficiency, optimizing our production and deliveries, investing in differentiating technologies, enhancing the Rivian customer experience and maintaining a strong balance sheet.

 

The progress we’ve made on ramping production and driving greater cost efficiency was significant in 2023. During the full year, we more than doubled production and deliveries and exceeded our initial production guidance by more than 7,000 vehicles.

 

This feels quite long on corporate speak and platitudes. My net takeaway on all this:

 

  • Rivian is #1 in the smallest premium segment of the market
  • Rivian believes they are laser focused on building the Rivian brand
  • Rivian is betting very heavily on the R2 and needs it to be a major success.
  • Costs need to continue to come down substantially before it is a sustainable business.
  • Rivian is focused on continuing to ramp up production volumes.

 

Question is, do the numbers back up the story?

According to Rivian, these are their 2023 highlights:

 

  • 167% increase in revenue in 2023 as compared to 2022
  • ~$81k gross profit per vehicle improvement Q4’23 compared to Q4’22
  • Launched leasing on R1
  • Exceeded all aspects of 2023 guidance.
  • Top selling electric vehicle over $70k in the United States for 2023
  • Launched Standard Range R1 variants starting at $69,900 in early 2024

 

Rivians’s highlights do focus on top line growth but are noticeably lacking on any cash flow or profitability metrics.  Looking into the numbers:

 

  • Full Year Key Results: The key numbers for Rivian in 2023 were 57,232 cars produced, (up 135% vs. 2022), cars delivered 50,122 (up 147% vs. 2022). Net Revenues of $4,434 million (167% vs. 2022), and net loss of $5,432 million (vs. loss of $6,748 million in 2022).  Selling, Administrative, and General (SG&A) expenses were down 4% in 2023 to $1,714 million.  Free Cash Flow in 2023 was negative $5,892 million vs. a negative $6,421 million in 2022.  Net loss per car delivered dropped in 2023 to $108k from $332k in 2022.  In the earnings call, Scaringe stated: “looking forward to continue to make progress on our drive towards profitability as a business.” Certainly, when you look at the key 2023 numbers, Rivian made solid progress across the board.  The problem is even after that progress, the Free Cash Flow and Let Loss numbers are still quite horrific.   

 

  • Financial Viability: Cash and short-term investments were $7.9 billion at year end 2023, down $4.2 billion vs. year end 2022. Long term debt is currently $4.4 billion, up $3.2 billion vs. prior year.  At its cash burn rate over the last 2 years, Rivian would appear to currently have enough liquidity to cover its needs into early 2025.  However, Rivian is projecting Capex of $1.75 billion in 2024, which is up $730 million vs. 2023.  Rivian’s net cash used in operating activities decreased $186 million in 2023 vs. 2022 to $1,026 million.  A similar decrease in 2024 will not even remotely cover the increase in Capex.  How they expect to cover the increase in Capex while not increasing the cash burn is unclear. If Lucid is unable to do this, they will run out of cash in Q4 2024 without a further injection of outside capital. Total liabilities were $7.6 billion at the end of 2023, cash was $7.8 billion, and the accumulated deficit was $18.6 billion.  How easy it will be to raise significant amounts of extra capital, that is highly likely to be needed in the next 12-18 months, will be interesting to see.

 

Rivian’s guidance for 2024 production is 57,000 vehicles, flat vs. 2023.  The $81k gross profit per vehicle improvement Q4’23 compared to Q4’22 that Rivian was touting in its 2023 highlights still resulted in a gross margin of -46%.  Even if they are able to improve margins again significantly, with SG&A still likely to be over $1.5 billion even after the announced cuts, the net loss number for the year is likely to be eye watering.

  • Distribution: Rivian operates a direct to consumer sales approach. It currently operates 11 “Spaces” (Sales showrooms) and 56 service centers in North America.  They plan on opening an additional 17 “Spaces” in 2024.  Almost all these “Spaces” are in major cities.  While the locations might be good for foot traffic, it seems a bit counterintuitive in terms of selling trucks and SUVs positioned against the rugged outdoor life Rivian features in their consumer communications. In 2022, Rivian produced 4,005 more vehicles than they delivered, and in 2023, the number was 7,110.  The excess production vs. deliveries over the past two years now amounts for just under a quarter’s worth of deliveries.  If Rivian had a dealership network, this would not be a major concern, however as it operates a direct to consumer models, it does raise the question on how this excess stock is being managed and why these cars were built in the first place.
  • Market Cap: Rivian’s market cap has been in a bit of a free fall since going public in 2021. It peaked at $127 billion in November 2021 and sits today at a more modest $ 10.8 billion.  The shares have basically moved in the same direction as Newton’s apple over the last several years dropping from $129.95 to $10.96.  Post the most recent earnings release analysis’ currently have price targets for Rivian ranging from $9 and $25 with a median of $17 which would indicate they see some upside.
  • Portfolio: Rivian current sells two models built off a single platform in three different performance trims.  It’s a four door R1T truck with a starting price of $70k and the R1S SUV which starts at $92k.  The smaller and less expensive R2 SUV (starting price $45k), which Rivian is betting heavily on, isn’t due until 2026.  The recently announced R3 probably will not appear for a few years afterwards.  While the portfolio of the future certainly has potential, with cash likely to run out by early 2025, it’s a major question on will Rivian live long enough to see the first R2s rolling off the line. 

We intend to harness this brand strength as we launch R2, which we will be unveiling on March 7th. R2 represents the essence of our brand while targeting the significant mid-sized SUV segment, a massive market with limited compelling EV options beyond Tesla. R2 has been developed with vertically-integrated propulsion platforms, electronics and software to create an incredible user experience.”

So we can add Rivian to what’s now a fairly long list of vehicle manufacturers (Lucid, AML, etc) betting that a SUV will save the business.

The Market: In his comments, Scaringe did acknowledge that:

 

“Our business is not immune to existing economic and geopolitical uncertainties. Most notably, the impact of historically high interest rates, which has negatively impacted demand. In this fluid environment, we appreciate the expressed interest in demand visibility from the investment community. The conversion of orders to sales can be impacted by several factors, including delivery timing, location of order, monthly payments, and customer readiness.”

And

“Our backlog (i.e order book) is something that we know there’s been questions around just what does that look like? What’s the topology of it? One of the things we need to recognize is a lot of the customers that are in our backlog have been there for a number of years. And as a result, it’s not as if the moment someone gets to the front of the line, so to speak, and they’re — we’re ready to make a delivery to them that they can take delivery at that moment. Life situation in terms of when they’re ready to take on a new vehicle, the coordination of that around what their financing expectations are, all of those factors play in.”

 

To summarize, for a company that desperately needs to increase volume, the economy is headed in the wrong direction and the order book is not exactly Ferrari quality.

  • Capacity: Rivian currently operates one major factory in Normal, Illinois with plans to build another in Georgia. The newly Normal facility currently has capacity for 150k vehicles and is being expanded to 200k in 2024.  The Georgia facility is planned to have capacity to produce 400k vehicles per year. Rivian’s current 2024 guidance calls for production of 57,000 units.
  • Post Earnings Call Development: Rivian announced they are delaying plans to build the $5 billion factory in Georgia. Production of the R2 will start at its existing plant in Illinois. This will save $2.25 billion in capital expenditures in the short term.  Why this was not announced as part of the earnings call is well beyond me.  It feels like either one of Rivian’s major investors might have had a “Come to Jesus” discussion with Mr. Scaringe after the 2023 earnings were released.

Summary

Going back to Elon Musk’s comment on Rivian: “the actual hard part of making a car company work is achieving volume production with positive cash flow.” He suggested his rival would go bankrupt in six quarters without a drastic change, saying it needed to “cut costs massively.”  There is nothing in the 2023 Earnings Report and 2024 Guidance that indicates Rivian is on track to achieve any of the above.  What hope there is, in the form of the R2, doesn’t arrive until 2026 and the R3 for all intents and purposes, is irrelevant at this point.  While the delay in building the Georgia factory is clearly the right decision and helps, the remaining gap is enormous.  While Rivian does deserve credit for the financial improvements it did make in 2023, it is taking baby steps at a time when giant leaps are needed.  Whether or not Rivian survives to see an R2 roll out the factory door will come down to a decision likely later this year by its investors and bankers on whether they believe Rivian has made enough progress in 2024 to make it worth investing/risking several more billion to bridge the company to 2026.

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March 2023

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End of Term: Porsche 911 (997.2) GT3 RS 

End of Term: Porsche 911 (997.2) GT3 RS 

After 7 years, it was time for our red eared Porsche 911 (997.2) GT3 RS to head to a new home.  The GT3 RS was just the latest victim of our household rule that if you aren’t getting driven regularly, you lose your garage space.  In many ways though, the fact that the GT3 RS lasted 7 years is a testament to just how great a car it is.  If you had asked me how long I expected we would have kept the GT3 RS when it first arrived, I would have guessed around 2 years.  It had a good long run up until 2022.  It was the arrival of the McLaren 765LT Spider that year that first put the GT3 RS’s garage spot in jeopardy.  It’s the likely arrival of the SCG 004S later this year that finally cemented the decision. 

How we ended up with the 911 (997.2) GT3 RS is a bit of a convoluted story.  It really started off with a major misfire on trying to acquire a Porsche Carrera GT.  This was back in June 2014. I had located a 2005  Black/Grey Carrera GT with 8,200 miles at Porsche of Newport Beach in California. We had agreed a price, I had offered to wire over a deposit (which I was told was not necessary) and I was just waiting for them to send over the pre-purchase inspection report before wiring payment. After three days and no signs of the PPI nor any response to my emails, I finally called the salesman back and was told they had sold the Carrera GT to another buyer.  What made it even worse was the dealership manager wasn’t even apologetic about the situation and basically told me to go pound sand.  This basically put me off the Carrera GT option for several years.

 

All of this brings us back to the GT3 RS.  With the CGT out as a short-term option, I started doing a bit of research on the various GT3 variants as I considered that to be the next best thing.  A traditional manual gearbox was a must have which immediately ruled out the later 991.1 series.  I also reached out for input from Nick Trott (former editor of EVO Magazine & MotorSport) who is both a die-hard Porsche fan and has forgotten more about the different 911 models than I will ever know.  Originally, I had settled on 997.1 GT3 but after hearing multiple rave reviews of the 997.2 GT3 RS, I changed directions and decided that the rawer more focused car was a better fit to my personal tastes.  The .2’s also can be optioned with a front axle lift system, which in the area I live, is a necessity. The fact that the 997.2 GT3 RS also won EVO’s car of the year in 2010 didn’t hurt. 

 

From final decision on model to finding the right car happened very quickly.  It was four weeks from search start to deposit placed. I found the car via the Porsche pre-owned vehicle locator while sitting in a ski lodge exhausted at the end of a great day on the slopes.  The GT3 RS had been listed the day before and I immediately placed a call to the dealer, Porsche of Beverly Hills, as soon as I saw the listing.  A quick email exchange on the history of the car followed and the next day, New Year’s Eve, a deposit was placed.  Given the holidays, it took another couple of days to finalize the transaction but by the second week of January the GT3 RS was in route to the first of three different places it would live in our time together..  The positive experience with Porsche’s Beverly Hills dealership could not have been more different from the disappointing mess on the Carrera GT at the Newport Beach dealership. 

 

During the seven years of GT3 RS ownership, we have had several highly memorable trips together.  The first one that comes to mind was a two day trip with my youngest son (aka – Bad Driver) when we drove a pair of Porsches from Dallas, to what would become their new home for several years, to Montana.  Here’s a short summary of that drive:

This year I drove the Porsche 911 (997.2) GT3 RS up while Bad Driver followed in the Porsche Cayenne S.  In effect, these are the two extremes of the Porsche line up.  The quick agile truck and the raw focused track weapon.  Despite having owned the Cayenne S for 3 ½ and the GT3 RS for a year and a half, this was the first major long distant trip for both.  While I had no concerns on how Bad Driver would hold up for 1,600 miles in the Cayenne, I was concerned with the beating I might be setting myself up for in the striped down GT3 RS.  Little to no sound deadening, thinly padded racing buckets, and a suspension designed more for the Nurburgring Ring than the US Interstate Highway system is not a recipe for setting a new standard of comfort.

 

The trip started at 7:00 AM on Thursday morning. The targeted destination for day 1 was just north of Denver, a not insignificant 920 miles away. A further 680 miles would follow on day 2. This year we decided to take the longer way up through Oklahoma and then across via Kansas which would keep us on highways for almost the entire trip.  This routing avoided the back roads and small towns in Texas & Colorado which slowed our progress considerably when we did a similar trip last year in the McLaren 675LT Spider.   We were hoping the early-ish start would allow us to clear the Dallas before rush hour reached its peak and break out onto the open highway where more rapid progress could be made.  Other than one minor accident related traffic jam, the plan worked well and we found ourselves crossing the Oklahoma border in good time.  Our first, of what would be many, fuel stops came shortly afterwards.  While the Cayenne sported a range of 450+ miles, getting 200 miles out of the GT3 RS’s water bottle size tank was about the best we could do.  By the time we stopped for the night, we had toured five gas station forecourts across three states with a further four stops following on day 2.  On the plus side, it did give me the chance to get out of the GT3 RS about every 2 ½ hours to stretch my legs. 

 

As a long-distance tourer, the GT3 RS is survivable.  The seats and driving position are quite comfortable, the controls all well-arranged and intuitive, and the sightlines are excellent.  The lack of sound-deadening coupled with the very firm suspension do cause a fair amount of brain and body damage over extended periods.  While the sounds system is not too bad when stationary, once you get moving a speed it has plenty of competition from the rear of the car.  Passing is almost too easy, drop down 2 gears, a bit of right foot and what was in front will now be firmly in the rearview mirror.  Below 3000 rpms engine grunt is pretty ordinary, north of 4500 rpms the GT3 RS comes very much alive.  This is a car that wants to be pushed hard and really driven.  Cruising is just not its thing.  

 

While day one was basically an uninspiring slog on dead straight concrete highways across the flatlands, day two was significantly more interesting.  Once we crossed into Wyoming, the speed limit increased to 80 mph and the quality of the roads improved dramatically.  While it doesn’t have quite the fun factor of a mountain pass, the 350 miles up through Wyoming are about as good as it gets on a US Interstate.  There is little to no traffic, the road is painted across the hills, and you have the Rocky Mountains to your west.  If there ever was a stretch of highway in the US that an autobahn approach to speed limits should be applied to, it is this.  Needless to say, we made rapid progress and the GT3 RS started to really come into its own.  Crossing into Montana, the roads got even more interesting as the hills grew in size.  For the first time in 1,220 miles, the gearbox started to get more of a work out as we powered up the hills and then down through fairly tight corners.  After another rapidly covered 250 miles, we were finally off the highway and headed up into the mountains.  The final 50 miles were on what is becoming one of my favorite pieces of tarmac in the US.  The two lanes of Route 191 are cut alongside the Gallatin River as it winds through a narrow valley with towering peaks on both sides.  It is challenging, beautiful, and unforgiving if you get it wrong.  As one of the key access routes to Yellowstone National Park, it also gets a fair amount of traffic which needs to be navigated in tight passing zones that are few and far between. 

 

While on the highway, the Cayenne S had little trouble keeping pace with the GT3 RS, however I lost “Bad Driver” almost immediately as soon as we headed into the mountains.  This was not unexpected as his last words to me at our final gas station stop were “I will see you at the house”.  Here the GT3 RS was completely in its element, the brain and body damage of 1,200 miles on the highway were washed away and quickly forgotten.  The more you push it, the better the GT3 RS gets. Hands and feet were plenty busy working the gearbox, navigating the corners, and dispatching slower moving traffic.  As my daily driver is a mid-engined car, the difference in weight distribution on the GT3 RS was quite discernable.  The fact that the engine is hanging off the rear axle is definitely noticeable, as is the more pronounced weight transfer when you mash the middle pedal.  If you want to keep the horizon in front of you, corners are definitely slow in, fast out.

 

After 1600 miles and twice that in dead bugs, we arrived at our destination. Over the course of two days, I finally really bonded with the GT3 RS.  In the last several hundred miles, I really started understanding the depths of its abilities.  Subsequent drives up through the mountains in the days that followed further deepened my appreciation of what Porsche created with the GT3 RS.  It’s a car that is now up in an environment where it can really shine.

As a car to own, from a maintenance cost perspective, the GT3 RS was quite reasonable for a sportscar in its class.  The only major unpleasant surprise came shortly after we acquired the GT3 RS.  It turned out that the power steering line was leaking, which doesn’t sound like a big deal, until you find out that the engine needs to be pulled to change the line.    While not quite as hard on the wallet as pulling an engine on a Ferrari F355, it was still a quite unpleasant surprise.  The rest of the annual services were all in the $800-$1,500 range with the only other significant expense being a set of new tires in early 2023.  Overall GT3 RS ownership was remarkably drama free.

 

I do miss the 911 (997.2) GT3 RS now that it is gone.  It was always such an engaging car to drive.  I loved the raw uncompromised focus of the GT3 RS but at the same time, that also was the cars Achilles heal.  While it was great to take on a blast up a mountain road for an hour or two, it was far too raw to ever get the nod for a weekend road trip with Mrs. SSO.  With it being relegated to a point A to point A car, it really was only a matter of time until its  “Use Case” expired with the result being it just wasn’t getting the regular use it needs over the last year and a bit.  Hopefully it has now found a new home where it will be both appreciated and driven with vigor regularly.

 

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February 2024

 

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Aston Martin’s FY 2023 Results: Turtle Flambé

Aston Martin’s FY 2023 Results: Turtle Flambé

In his opening remarks on the Aston Martin Lagonda (AML) earnings call this week, AML’s Executive Chairman, Lawrence Stroll proudly stated: Just last weekend, the latest season of Drive to Survive was released globally. Featuring Aston Martin in episode one, the most watched show on Netflix in more than 40 countries, the series prominently brings our brand and products to millions of viewers.”

 

Also today, initial data released by Netflix reveals that the audience numbers for the first three days of Season 6 have been less than stellar. With an average viewership of just 2.9 million in its opening days, there is a notable 30% drop compared to last year’s figures. 

 

These two statements, in many ways, is a great summary of Aston Martin’s 2023 performance and the content of the earnings call.  Lots of puff and bluster paralleled by a few uncomfortable facts.

 

The earnings call this time was a fairly free flowing affair.  The highly discipled and scripted Lawrence Stroll we saw this time last year is long gone and he is back to the more bombastic but highly entertaining figure we are used to.   A year ago all Stroll’s references to the Aston Martin Aramco Cognizant Formula One Team referred to it as a “partnership” with AML and no longer as AML’s “Works” F1 Team, that’s long gone again at its back to being Aston Martin’s F1 Team.  Stroll, lead the call with both CEO Amedeo Felisa & CFO Doug Lafferty providing opening statements and helping to respond to questions.  As usual though it really was the Stroll Show and what was not said was as interesting as what was stated. 

 

In an interview with CNBC in June 2023, Lawrence Stroll stated that “Aston Martin is on fire right now”.  Stroll then followed up on the “On Fire” declaration in the July 1st half earnings by proclaiming the Aston Martin’s “Turnaround Was Complete”.  He opened the FY 2023 earnings call by proclaiming “We have made tremendous progress within that time. We have transformed our iconic global brand. Reinvigorated our product portfolio. And improved our balance sheet supported by our long term strategic partners. In 2023, Aston Martin delivered significant financial and strategic progress.” Which all sounds hugely impressive……..if the numbers backed it up.

Looking at the FY 2023 highlights:

AML’s 2023 Highlights

The 2023 highlights according to the Aston Martin press release are:

  • Revenue growth of 18%; driven by robust volumes and record ASPs
  • Gross margin improved 650bps to 39.1%; driven by ongoing portfolio transformation.
  • Adjusted EBITDA increased 61%; margin improved 490 basis points to 18.7%
  • Strong Q4 performance delivered record gross margin and adjusted EBITDA in the quarter.
  • Disciplined strategic delivery supported ongoing deleveraging; net leverage ratio at 2.7x
  • Near and medium-term guidance maintained.

 

This all sounds wonderful.  What they failed to mention but is buried in the numbers:

  • Vehicle wholesales down 6% in Q4 2023 vs. Q4 2022
  • Free Cash Flow of -£360 mil. in 2023 and deterioration of -£61 mil. vs 2022.
  • Cash end 2023 down by £191 mil. (vs. end 2022) to £392.4 mil. which includes £311 mil. in proceeds from 2023 share sales (ex the share sales cash would be £81.4 mil.).
  • Net Debt of £814 mil. up £48 mil. vs. year end 2022
  • DBX wholesales were down 50% in Q4 2023

This tells a bit of a different story.  To begin to understand the situation, here is the original 2023 Guidance that AML provided in early 2023 and the results:

 

2023 Guidance

2023 Results

Comment

Wholesales

7,000

6,620

Miss

Adj EBITDA

Up to 20%

18.7%

Miss

D&A

£350-370 mil.

£386 mil.

Close to target

Interest

£120 mil.

£109 mil.

Close to target

Capex & R&D

£370 mil.

£397 mil.

Miss

And also included in AML’s 2023 Guidance:

  • Expect strong YoY growth in H2’23, driven by new Core & high margin Specials products
  • Positive FCF expected in H2’23

What’s even more embarrassing, is that AML issued revised guidance in Nov. 2023 which took the “Wholesale” target down to 6,700……and they even missed that.

The miss on “Wholesales” is particularly concerning.  

 

Q1 2023

Q2 2023

Q3 2023

Q4 2023

FY 2023

Cars Wholesale

1,269

1,685

1,444

2,222

6,620

Net net, to get even close to delivering against even the reduced 2023 Guidance issued in Nov, AML had to massively load dealerships in Q4.  In fact, they shipped 50% over what would have been the expected Q4 demand based on the prior 3 quarters of 2023 (as a reference, Ferrari noted in its last earnings report that Q4 is normally its weakest quarter in terms of wholesales).  Stroll’s multiple past statements that AML now only produces to demand, are about as convincing as certain other comments about another Stroll eventually being an F1 Champion.  However, just like last year, buried in the Financial Results is the following statement:

Wholesales were temporarily ahead of retails at the end of the year.

 

This also puts a rather large fork in the statement Lafferty made on the July Earnings Call Christmas wish was: “I really like to see us starting to flatten the profile and certainly start to see an end of you know Q4 being you know the sort of end of the hockey stick.”  

Digging into the Q4 shipment data a bit, a few interesting trends emerge:

Wholesales by Region

Q1-Q3 2023 Average

Q4 2023

Q4 vs Q1-Q3 Average

Q4 2022

Q4 2023 vs Q4 2022

UK

258

367

+42%

416

-12%

Americas

466

620

+33%

828

-25%

EMEA

415

727

+75%

628

+16%

APAC

320

508

+59%

480

+6%

 

And

 

Wholesales by Model

Q1-Q3 2023 Average

Q4 2023

Q4 vs Q1-Q3 Average

Q4 2022

Q4 2023 vs Q4 2022

Sport/GT

697

1,440

+107%

920

+57%

SUV

746

699

-6%

1,393

-50%

Specials

27

83

+207%

39

+113%

When Aston “suspended” its declared demand led model in 2023 across all regions, it was EMEA that got the lion’s share of the extra stock.  This does make sense given both its size and proximity to the UK.  It also appears that all the “wholesales that were temporarily ahead of retails” were Sport/GTs and within that category, it was DB12’s as the current Vantage is being phased out.  The Specials would mostly have gone straight to customers.  The huge increase in Specials deliveries would have significantly helped both top line revenue and ASP.  From what I’ve heard from a few sources, while these DB12s have shown up on at dealerships, they are on “quarantine” waiting on software updates.  While this is all interesting, the numbers that really jump out are the DBX.  It looks like Aston was not able to push any additional DBXs into dealerships (which explains why they missed even the lowered guidance number) beyond what now appears to be the quarterly wholesale average.  In this case my guess would be that wholesales and retails are now fairly close but that dealerships are sitting on plenty of DBX inventory that was built up starting in 2022 and now are only willing to bring in replacement stock. 

It would appear that the AML quarterly cadence now is, load as much as you can in Q4 and then work it through the dealerships over the next couple of quarters.  One of the largest US Aston Martin dealers has the following statement on their website “We have a much larger inventory on site and in transit” which would seem to put a rather large final nail in the demand led model myth.

Going back to Stroll’s opening comments in the Earnings Call “In 2023, Aston Martin delivered significant financial and strategic progress.”  I guess “progress” includes quarter on quarter wholesale declines in 2 out of your four regions, a 50% quarter on quarter decline in DBX wholesales, and missing even your lowered 2023 wholesale guidance number.

I would summarize this as a company that is continuing to lurch from crisis to crisis.  Last year it was the DBX 707 start up, this year it’s the DB12.  Squaring the management’s statements with the results is an exercise in doctorate level creativity.   It’s crystal clear at this point that the big bet on the DBX hasn’t worked. It wasn’t too long ago that AML was targeting to sell 10,000 cars in 2024/25 of which around 6,000 were expected to be DBX’s.  Based on the last two years results, AML will be lucky to do even half that number this year.  The DB12 isn’t really looking any better than the DBX 707, despite all the management hype.  In the earning call Stroll made the following comment on the DB12 order book: “We are currently sold out on DB12 to the end of third quarter of this year.” Which in terms of length, is about on par with where the order book was during the Q3 Earnings Call.  As a reference, Ferrari’s order book is full across all models until the end of 2025.

The following covers highlights from the FY 2023 Results, the Debt, & a few other areas of interest. 

Turnaround Complete?

Starting with the FY2023 results, which according to Lawrence Stroll’s quote in the Earnings Call:

“We have made tremendous progress within that time. We have transformed our iconic global brand. Reinvigorated our product portfolio. And improved our balance sheet supported by our long term strategic partners.

 

FY 2022

Q1 2023

Q2 2023

Q3 2023

Q4 2023

FY 2023

Cars Wholesale

6,412

1,269

1,685

1,444

2,222

6,620

Revenue

£1,382 mil.

£296 mil.

£382 mil.

£362 mil.

£593 mil.

£1,633 mil.

EBITDA

£190 mil.

£30 mil.

£50 mil.

£51 mil.

£175 mil.

£306 mil.

Operating Profit

-£142 mil.

-£51 mil.

-£42 mil.

-£52 mil.

£34 mil.

-£111 mil.

Free Cash Flow

-£299 mil.

-£118 mil.

-£100 mil.

-£79 mil.

-£63 mil.

-£360 mil.

Net Debt

£766 mil.

£868 mil.

£846 mil.

£750 mil.

£814 mil.

£814 mil.

The fantastic year that Stroll references involves racking up -£240 mil. in pre tax losses for an average of -£36k per car wholesaled.  While the £250 mil. in revenue growth looks impressive, it’s likely that £150-£170 mil. of it came from the increase in “Specials”.  While total ASP was up 15% in 2023, core ASP was only up 6% (as a reference ASP on Kellogg’s Corn Flakes was up 12% in 2023).  If you strip out the extra 44 Specials AML shipped in Q4 2023 vs. Q4 2022, revenue would have been down on a quarterly basis for the 2nd quarter in a row.  Without the Valkyrie, which was conceived a good four years before Stroll arrived on the scene, the numbers would look considerable worse.  I do hope Lawrence sent Andy Palmer & the Nebula Team a big box of chocolates for Valentines’ Days as a thank you for the Valkyrie.

Flambé

In AML’s initial 2023 guidance they called for:

 Positive FCF expected in H2’23

which was later revised to Positive FCF in Q4 2023.  What AML delivered in Q4 2023 was -£63 mil. of Free Cash Flow.  As misses go, this one is quite impressive, especially considering that the revised outlook to have positive FCF in Q4 2023 was issued in November.  Just to make matters worse, FCF was actually worse in 2023 at a -£360 mil. than it was in 2022 (-£299 mil.).  Positive Free Cash Flow is basically table stakes to be considered a heathy business and despite the latest promises that AML will now get there in the 2nd half of 2024, that still seems a long way off.

Earlier in 2023, Lafferty stated: “This year for us is all about execution. So, we have got to execute the plan. We have got to get to where we need to get to in the second half of the year. Given where they are, AML clearly has its executional challenges.  Given AML’s overall financial situation, you would expect “Administrative & Other Operating Expenses” to be tightly managed and headed south but in 2023, they were up by a shocking £127 mil.  In my past life, in a profitable healthy business we used to target growing Administrative Expenses at 60% the rate of Revenue growth.  AML is growing them at nearly 150% the rate of revenue growth.

Net debt at the end of 2022 stood at £766 mil. By the end of December 2023, it had risen to £814 mil.  Cash at the end of 2023 was down by £191 mil. (vs. end 2022) to £392.4 mil. which includes £311 mil. in proceeds from 2023 share sales (ex the share sales cash would be £81.4 mil.). The bulk of the cash raised in 2023 has already been burned through (which confirms Stroll’s comment in June on CNBC that Aston Martin is on fire).  Just to make the cash situation even a bit more concerning, customer deposits are down by £66 mil. in Q4 2023 to around £270 mil. (equalivant to 69% of AML’s cash) as AML hasn’t been able to bring in new deposit funds for the Valour & Valhalla fast enough to offset the unwinds as Valkyries get delivered.

Throw in another £963 mil. of “Trade & Other Payables and all in, AML’s total debt pile (Net Debt + Trade & Other Payables) is around £1.7 billion.   There is also £1.6 billion (and growing) of Intangible Assets sitting on the balance sheet which will need to be amortized over the coming years.  Given AML’s overall debt situation, it’s not the least bit surprising that back in Q3 2023, Lafferty stated that a:

“fulsome refinancing exercise during the first half of 2024”

 

And in the latest Earnings release the following statement was included:

 

As previously announced, we expect to refinance our outstanding debt in the first half of 2024. We are in the advanced stages of preparation and look forward to launching this

process in due course.

And then on the earnings call, Lafferty stated: we’re not currently considering equity as part of the refinancing.

What is quite surprising about the last statement is that AML is not considering raising additional equity as part of this exercise.  Given the high interest rate environment we are currently living in, equity is currently the preferred option for companies currently raising cash.  Then again, Lafferty does use the word “currently” in his statement.  That does leave it subject to change at any moment.  In fact, equity would seem to be the far more logical route to go given AML had a loss before tax of £240 mil. in 2023.  £129 mil. of that loss came its net financing costs.  If AML had retired the majority of its financing cost and had held its, “Administrative & Other Operating Expenses” flat (vs. a head scratching £127 mil. increase) it would have been borderline profitable.

 

And a few other Misc items

In the earnings call, Stroll confirmed that AML is pushing its EV launch back to 2026 from 2025 given the current market place for EVs.  This comes after AML made an initial £27 mil. payment to Lucid in Q4 2023 relating to the new strategic supply agreement for EV technology.  Stroll also indicated that while production of the long delayed Valhalla will start in 2024, deliveries are not expected until 2025.  In the 2022 Annual Report AML indicated that they had only taken deposits for half the expected Valhalla production run, given that total customer deposits are down significantly in 2023, it would appear that they are continuing to have challenges finding buyers for this long delayed mid-engine supercar.

2024 Guidance

There are a few points of interest in the 2024 Guidance:

  • After 2023’s big miss, AML is no longer giving a specific Wholesale target
  • The £110 million of net cash interest would indicate they are not planning to retire the majority of the massive debt pile
  • Positive Free Cash Flow in the 2nd half, feels very much like the NY Jets playoff hopes at the beginning of every season
  • And again, AML is indicating that Wholesale Volumes will be weighted to the 2nd So much for getting out of the “Wholesales were temporarily ahead of retails at the end of the year” cycle

Summary

As expected, it looks like AML is well on its way to running out of cash again while its “Administrative & Operating Expenses” are growing at a significantly higher rate than AML’s revenue.  It will be very interesting to see how the 2024 refinancing will be handled and if equity will turn out to be a big part of it.  AML whiffed big time on its original 2023 goal of being Free Cash Flow positive in the 2nd half, and in fact 2023 was worse in this area than both 2021 & 2022.  DBX volumes look like they have hit a wall, and that wall is only about half the way to where AML thought they would be not too long ago.  The Q4 wholesales were well short of the target and the DB12 start up has been a bit of a mess.  The DB12 orderbook still looks light, certainly lighter than expected given all the PR around it.  The 2024 Guidance looks a lot like the 2023 Guidance and that didn’t go so well.  The big bet last year was the DB12 and that start up went about as smoothly as the DBX 707 did.  This year it’s the new Vantage, it will be interesting to see if AML has learned from its past challenges.

Note: I do not and have never owned any AML shares.

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Analysis of Maserati’s 2023 Results

Analysis of Maserati’s 2023 Results

Stellantis reported their 2023 results last week.  As part of the Stellantis group, Maserati’s numbers were included in the reporting.  Maserati is only brand within the group for which Stellantis breaks out even a limited amount of financial information on.  Based on that limited information, I have pulled together a brief anaylsis on Maserati’s 2023.

 

A Short History

For Maserati, its current era started in 1993 when Fiat acquired Maserati.  In 1999 Ferrari (which at the time was 90% owned by Fiat) took full ownership and control of Maserati.  Under Ferrari’s ownership, Maserati’s factories were modernized, and a range of new, vastly improved models powered by Ferrari supplied engines were developed.  These models included the Coupe, Spider, GranSport, GranTurismo, Quattroporte Gen 5, and MC12 hypercar.  It was also during this era that Maserati reentered the US market.  The era of Ferrari’s direct control of Maserati however was short, and in 2005 Fiat resumed direct control of Maserati.  Fiat later acquired Chrysler, becoming FCA and the merged in 2021 with Peugeot to form Stellantis.  Today, Maserati is one of 14 major global car brands within Stellantis.  

Starting with a very high level overview of Stellantis’ results as the overall health of the parent company is critical to being able to both fund & support Maserati’s ambitions:

 

  • Stellantis Full Year Key Results: The key numbers for Stellantis in 2023 were 6,175K cars sold, (up 5.7% vs 2022), Net Revenues of €189,544 million (+5.5%), and net profit of €18,625 million (+11%). Net profit growing at twice the rate of revenue is the sign of a well run business that has its costs well under control. Industrial Free Cash Flow was €12,858 million, up €2,039 million (+19%).    In addition, Stellantis finished 2023 with €61,610 million of Liquidity.

 

Looking at the high level numbers, it’s not a surprise that Stellantis leads all major car manufacturers in delivering total shareholder return over the last 2 years. Seems that Chairman John Elkann (who is also the Executive Chairman of Ferrari) has the golden touch in both the mass and luxury automobile markets.

                                                    

  • Maserati Full Year Key Results: The key numbers for Maserati in 2023 were 26,600 cars sold, (up 2.7% vs 2022), Net Revenues of €2,335 million (+0.6%), and operating income of €141 million (-29.9%). The drop in operating income is mainly due to increase in depreciation & amortization of R&D costs related to the launch of new models.

 

  • Portfolio: Maserati launched three new models in 2023, the mid engine MC20 Cielo (convertible) supercar, the Gen 2 GranTurismo, and the mid size Grecale SUV. The MC20 coupe, Levante SUV, and Quattroporte & Ghilbi sedans filled out Maserati’s 2023 lineup.  2023 was also the last year of Ferrari’s engine supply agreement with Maserati so going forward, most Maserati models will be powered by either Maserati’s bespoke Nettuno V6 twin turbo or the Folgore EV system.

 

  • Product Mix & Profitability: While Stellantis does not provide any geographic or model sales data for Maserati. However, in combing through the fine print, they do indicate that the Grecale & new GranTurismo have had a positive impact on volume while the MC20 has helped with mix.  Unfavorable foreign currency translation for the US Dollar, Chinese RMB & Japanese Yen were listed as drags on revenue which is an indication that these are all quite sizeable markets for Maserati.

 

  • Future Models: The two current sedans, the Ghilbi & Quattroporte are slated for discontinuation shortly and I expect they will be replaced by a new Quattroporte Gen 7 in 2025. The same holds for the Levante.  An unrestrained track only version of the MC20 (MCXtrema) was first shown last August and I would expect deliveries to start later this year.

Summary

Maserati’s journey over the last several decades has taken it from the edge of the abyss in the early 90’s, to survival under FIAT, rebirth as part of the Ferrari empire, to treading water for a decade, and now finally to a new beginning as Stellantis’ luxury brand.  In 2019, Maserati produced 19k cars, in 2020 (COVID) it was 17k, in 2021 it rose to 24k, in 2022 to 25.9k and in 2023 up to 26.6k.  This shows solid healthy multiyear growth on par with other well performing luxury car companies.  Stellantis certainly has the financial and engineering resources needed to nurture a successful Maserati.  The portfolio today is easily Maserati’s strongest in its history and with a new Quattroporte and Levante coming in 2025, it will only get stronger.

 

 

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February 2024

 

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